Iconic smallgoods producer D'Orsogna typifies the challenges facing food manufacturers in WA, which are refining their strategies in response to an increasingly competitive market.
Smallgoods producer D’Orsogna Ltd believes a simplified corporate structure recently implemented at the family company will support plans to crank up its interstate expansion.
Managing director Brad Thomason said the group was in a strong position to pursue growth, despite being adversely affected this year by changes in its core Western Australian market.
“We’re quite bullish about what we want to do,” he said. “It’s about going to the next level, and the next level is outside WA.”
Mr Thomason spoke to WA Business News after the company disclosed that its operating business, D’Orsogna Ltd, had been demerged from the family company D’Orsogna Bros Pty Ltd.
He said the main benefit of the demerger was the increased flexibility it would give the group, which would be able to assess a range of financing options.
“We want to be fast and nimble; if we need to do anything it can be done quickly,” he said.
Mr Thomason said the D’Orsogna family was happy with the performance of the group, despite a fall in profit.
D’Orsogna Ltd reported a net profit of just $10,795 for the year to June 2006, down from $1.4 million in the previous year.
However, Mr Thomason said intra-group transactions, including royalty, interest and rent payments, meant this was not a meaningful result.
A better guide was D’Orsogna Bros consolidated net profit of $2.7 million, though even this number was well down from the 2005 profit of $7.3 million.
Mr Thomason em-pha-sised that the family planned to retain ownership of the business.
“From a family point of view, there is no intention to sell the business,” he said.
However, it would consider funding options, including a sharemarket float, direct investment or a merger, if that suited the family’s objectives.
“We are on the front foot considering this, not the back foot.”
Mr Thomason said the demerger process was designed to set up the operating business for future expansion.
The operating business was previously carrying a $12 million debt to the family company, but $5 million of this amount has been converted to equity.
The demerger process also included the transfer of royalties to the operating business.
These changes will substantially reduce the costs being carried by the operating company, which Mr Thomason said had a very strong cash flow.
The group’s 2006 results were adversely affected by the break-up of the Action supermarket chain, with the lost sales offset by extra sales to independent retailers in WA. The end result was that total sales were flat at $81 million.
To put this in context, Mr Thomason said the group had more than doubled sales over the past seven years and was confident of further substantial growth.
“The bulk of the growth has come from our ability to grow outside the state,” he said.
The company had good relationships with national customers Woolworths, Coles Myer, Subway and Hungry Jacks, and interstate sales now accounted for about 30 per cent of total sales, Mr Thomason said.
